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BENEFITS AND FEATURES OF T-BILLS

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Benefits of T – Bills:

(i) T – Bills are highly liquid.

(ii) No tax deducted at source.

(iii) No risk of default as its being issued by the Govt. of India.

(iv) Better returns especially in the short – term.

(v) Transparency.

(vi) Low transaction cost.

(vii) The yield on T – bills is assured.

(viii) Simplified settlement.

(ix) High degree of tradability and active secondary market facilitates meeting unplanned fund requirements.

Features of Treasury Bills:

(i) Form: The treasury bills are issued in the form of promissory note in physical form or by credit to Subsidiary General Ledger (SGL) account or Gilt account in dematerialized form. 

(ii) Minimum Amount of Bids: Bids for treasury bills are to be made for a minimum amount of Rs.25,000/- only and in multiples thereof. 

(iii) Eligibility: All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organizations, Nepal Rashtra Bank and even individuals are eligible to bid and purchase Treasury bills. 

(iv) Repayment: The treasury bills are repaid at par on the expiry of their tenure at the office of the Reserve Bank of India. 

(v) Availability: All treasury Bills are highly liquid instruments available both in the primary and secondary market. 

(vi) Day Count: For treasury bills the day count is taken as 365 days for a year. 

(vii) Yield Calculation: The yield of a Treasury bill is calculated as per the following formula:-  Y = (     )   Where Y = Discounted yield   P = Price D = Days to maturity  

Example: A co – operative bank wishes to buy 91 Days‟ Treasury Bill on Oct. 12, 2012 which is Maturing on Dec. 6, 2012. The rate quoted by seller is Rs.99.1489 per Rs.100 face values. The YTM can be calculated as following:- 

The days to maturity of Treasury bill are 55 (October – 20 days, November – 30 days and December – 5 days)  YTM = (           )         (           )        = 5.70%  

Similarly if the YTM is quoted by the seller, price can be calculated by inputting the price in above formula.

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